Uncovered treasures can be managed care tools
Low-tech strategies for evaluating contracts
Like a judge in traffic court, consultant Darrell Schryver has heard every excuse in the book. In these cases, the defendants are medical group executives explaining why they can't compare their costs with proposed fee schedules from managed care organizations.
Schryver, a consultant for the Englewood, CO-based Medical Group Management Association's Management Consulting Services, says he's lost count of the number of times practice officials have pleaded ignorance of how much it costs their group to provide a specific procedure, due to lack of computer system capability to track data. Because knowing what it costs your group to deliver care is essential to evaluating a proposed managed care fee schedule, Schryver considers a lack of data a serious handicap.
Although a practice ideally wants to have a cost-accounting system in place that allocates direct costs for each CPT code, there is a starting point for groups low on cash and computer abilities. It's a method one Texas dermatology practice has used to its advantage for the past year.
Amarillo, TX-based High Plains Dermatology Center has used two methods for tracking its costs, says physician Larry C. Roberts, MD. Its initial strategy was to use Medicare relative value units (RVUs) to come up with costs per service for a practice. The practice now is taking cost measurement one step further by measuring its cost data against national benchmark data provided by MGMA's Center for Research in Ambulatory Health Care Administration (CRAHCA).
Figure costs per RVU
Schryver explains the RVU approach this way: Use your practice management software system to run a report on total costs by each CPT code (most practice management software systems can sort this way). Then take your practice's total costs in a given year for everything from salary and benefits for employees to the delivery of medical care, and apply them to each CPT code based on its RVU weight.
Say you divide your practice's total costs by the number of RVUs your practice bills and come up with a cost per RVU of $30. You then take the Medicare RVU weight for each CPT code and multiply it by the cost per RVU to come up with a specific cost for each code. If the RVU weight for CPT code 99115 were 1.5, for example, the cost of providing care for each service billed under that code would be $45.
High Plains Dermatology Center went through this exercise with Schryver, and was so convinced about the power of the data that it decided to get even more specific about its costs, Rogers says.
"What we're doing is using the CRAHCA chart of accounts - assets, liabilities, income, and expenses - and using those numbers to come up with a specific amount to apply to various procedures," he explains. For example, every time a practice employee takes an X-ray, there are certain fixed costs such as electricity and the actual service of providing the X-ray, in addition to costs such as salary and benefits for the X-ray technician.
The practice plans to compare these data with national benchmarks reported by CRAHCA based on a survey of the approximately 18,000 MGMA members, Roberts says. Because CRAHCA did not receive a statistically significant response from dermatology practices, High Plains Dermatology is using CRAHCA's OB/GYN figures.
Roberts got the data for his practice the old-fashioned way, by going through every single cancelled check the practice cashed in the past two years. He then categorized each check based on the categories used by CRAHCA, and typed these into the computer system using Quicken software. This gives him cost data for each procedure to compare against proposed managed care contracts.
"How on earth can a physician know if it [a contract] is good or bad without knowing what each service is costing him?" Roberts points out. He mentions a proposal from one payer that recently came across his desk, stating the MCO's plan to convert its reimbursement system to a percentage of the Resource Based Relative Value Scale used by Medicare. One element of the proposal set reimbursement for surgical procedures at 190% of Medicare rates. "That 190% might sound good unless it's $100 less than it's costing you to provide the service," Roberts says.
Knowing the practice's costs is part of Roberts' mission to learn more about the business side of medicine. After feeling "almost helpless" in operating in a managed care environment, Roberts took a year-long course in practice management at nearby Texas Tech University. "There's absolutely no training in the business of medicine [in medical school]. In the past, medicine has been such that anybody could make a success in private practice. Now, unless an individual has a thorough understanding of how the practice works, things like profit statements and cash flow . . . they're not going to make it."
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